Feeling Ripped Off?

This column has been inspired by the recent hue and cry over CBC’s reporting about bank tellers being pressured to sell customers additional services. Frankly, I have trouble appreciating the outrage: “Do you want fries with that?” is today’s marketing 101. Once a customer has already bought one service from you, the easiest sale is to find more things you can sell them.

A second inspiration is a recent commercial featuring a couple visiting their financial planner and finally discovering what their advisor has actually been charging them over the years. New regulations for investment advice have required advisors to report fees in dollars as well as percentage, and to include all fees, both what they charge you and what they get paid from the financial product providers to look after your money. This part of Client Relation Model Phase 2 rules that came into full force last July. Many customers are only seeing these disclosures since their 2016 statements. Transparency is great when it encourages customers to ask more questions. You have the right to know what you are paying for financial services and advice so that you can judge if you are getting value for your money.

Financial Literacy is having the knowledge, skills and confidence to make responsible financial decisions (Financial Consumer Agency of Canada). Financial literacy can ensure that you only buy the protection you need. And the basics of investing are quite simple with some fundamentals.

This is the third option in my book “THE END OF WORK – financial planning for people with better things to do”. If you are no longer comfortable with making financial decision based on “blind faith” in what your advisor or bank is telling you. But if you are not willing to invest the time and effort, risking many mistakes, to become a do-it-yourself financial planner, then you at least need to invest in your financial literacy if you are to avoid getting ripped off, being over-sold inappropriate products by a salesman on commission. Or worse, by not having the risk protection you need.

You will still need to interact with financial advisors, whether independent brokers or at your local bank, to pursue your financial goals. But knowing enough, having confidence enough, to be able to take responsibility for your own financial decisions begins with being armed with a degree of financial literacy that lets you take responsibility for the decisions. That knowledge begins with an understanding of the financial business in Canada today.

Many financial planners are knowledgeable and dedicated and really do care about their clients. Unfortunately, many are not. Some 100,000 people sell financial products. Most are paid on commission. They have to be pushy, and sell you as much of whatever they can. It is a tough business to make a living, with high turnover. Some financial companies recruit anyone with a pulse, sell them the “opportunity” to get rich, teach them some sales pitches, then let them loose on you. You may have already met one of those.

Only about one in three “financial advisors” is in the business as a vocation, to build a professional practice. These belong to a professional association, subscribe to a code of ethics, carry errors & omissions insurance and are committed to continuing education. When you do get a sales approach, check if they meet these professional standards. If they do, and you like them, make full use of their knowledge and advice.

You may think the Big Brother of government regulators is going to protect you from unscrupulous salesmen. There is a hodge-podge of some fifty agencies that “protect” you as a financial consumer; each province has their own for both insurance and for securities. Their main function is to license sales people through qualification exams. Annual license renewal requires continuing education credits, usually obtained from financial company sales seminars.

These regulatory requirements do ensure the consumer that even the “salesmen” in the business do meet a basic knowledge requirement. These exams are not easy and the study material is comprehensive. At least you will know that when you are oversold inappropriate products, the salesman did know what he was doing!

You may have to do more on your own anyway. In the interest of consumer protection and disclosure, some jurisdictions have banned commission compensation and imposed a statutory fiduciary duty obligation. Many advisors leave the business due to the costs of compliance, all the paperwork. That cost forces the rest to focus on higher net worth clients, where more revenue on larger sales can compensate for the added cost. That leaves the rest of us relying on Google for financial advice.

The value proposition in using an independent financial advisor is that they can take a holistic view of your needs. In practice, financial advisors tend to specialize in either the protection side (insurance products) or the money side (investment products) – there is more money to be made in the money side. Both sides are complex and require the advisor to invest time and effort in knowing the products, as well as in developing their sales skills to keep eating. The majority will be too busy trying to make a living to really be an expert in all the products available. Your advisor may have been giving good advice on the money side, but has she been neglecting your needs on the protection side? Only you have the truly holistic picture of your own needs.

You need to manage the risk to your income during your earning years and manage the risks to your investments that will provide your income after Work Ends. Having a degree of financial literacy will actually make you a more attractive client to the truly professional financial advisors you will need.